As the cost of living crisis deepens and wages fail to keep up with rising prices, many will struggle to pay their rent and mortgages. At the same time, we hear regularly of record house price growth. During Covid, too, we saw a record contraction in GDP, and yet house prices soared. The latest data shows that the average house now costs nine times the average salary in England, and 13 times in London, compared to an average ratio of 4.5 between 1950 and 2000.
There is a clear disconnect between the housing market and the rest of the economy. The truth is that house prices are skyrocketing because decades of policies have transformed homes into vehicles for accumulating wealth.
This is evidenced by the fact that you can ‘earn’ more from owning property than you can through work. While workers see their incomes stagnate, house prices in March rose by 14.3 percent on the year before—the fastest rate in seventeen years, since the pre-financial crisis housing boom—which meant the average house price increased by £33,000, much more than the average income for workers in 2021 of £25,971. Since 1995, the total value of UK housing wealth has increased from just over £1 trillion to over £5.7 trillion in 2020—accounting for almost 54 percent of all household wealth accumulated during this period.
As the prospect of owning a home slips further out of reach, and in the absence of adequate social housing, many are confined to the private rental sector, which has doubled in size since the 2000s and accommodates 4.4 million households today. Private renters face higher housing costs, greater insecurity of tenure, and poorer living conditions. The proportion of income spent on rent has risen from around 10 percent in 1980 to 32 percent in England and 42 percent in London in 2020, making our rents among the highest in Europe. (The UK government defines housing costs as ‘unaffordable’ if they exceed 30 percent of gross household income.)
So how did we get here? The most common story is that there just aren’t enough homes to keep up with demand. Property developers love this explanation because it makes politicians think the solution is simply to build more houses, regardless of affordability. It’s no surprise that the government’s housing policies have seen housebuilders like Persimmons make huge profits.
But there’s actually a considerable surplus of houses in the UK—1.1 million more dwellings than households in 2018, to be precise, compared with 660,000 in 1996. This is true for all areas of the country, including London, where in 2020 there were 7.5 percent more dwellings than households.
Instead of a simplistic focus on supply, then, we need to look at the dramatic changes over the last fifty years that have driven demand for housing as a lucrative investment, rather than a place to live.
Affordable housing provision was a priority for the post-World War Two reconstruction era, but from the 1980s onwards a series of reforms shifted the balance of power dramatically away from renters and social housing residents and towards landlords and developers. Among this package of reforms was the famous slash-and-burn of social housing via Thatcher’s ‘Right to Buy’, as well as the scrapping of rent controls, the weakening of housing benefits, and the expansion of ‘Buy to Let’ mortgages, which incentivised the wealthy to grow their savings by buying up and letting multiple properties.
At the same time, governments ripped up the red tape that limits how much banks can lend to people to buy houses—an approach that culminated in the 2008 crash, triggered by risky mortgage lending spilling over into the rest of the financial system. Since 1999, total unpaid mortgage debt across the UK has increased from £485 billion to over £1.5 trillion. That means money flowing into property, leading the wealthy to buy multiple homes, and pushing prices up and up. Since the 1990s, mortgage lending in the UK has increased from 40 percent of GDP to 60 percent. Even after 2008, banks’ preference for mortgage lending has hardly changed, with the majority of lending directed towards mortgages in 2021. This has kept house prices on an upward trajectory.
Although there is a need for better supply of good quality affordable and social housing, building more houses on its own won’t stop prices from skyrocketing. The government’s own house price model supports this, suggesting that even if the number of homes had grown 300,000 every year since 1996, the average house today would be only seven percent cheaper—which would do little to reverse the 120 percent increase in real house prices over the last 30 years.
Tackling the Problem
Successive governments have failed to tackle the housing crisis because they assume policies that stop house prices from rising would be unpopular, as homeowners make up the majority tenure in the UK. But new YouGov polling commissioned by Positive Money indicates the public mood is beginning to shift.
A majority (54 percent) of British homeowners surveyed said they would be happy if their own home did not rise in value in the next ten years if it made housing more affordable for others—proof that homeowners recognise how broken the housing market is today. Nearly two thirds (62 percent) of those surveyed agreed that the purpose of a house should be mainly a home, with only one percent believing that houses should be ‘mainly a financial investment’.
So what do we do about it? The truth is Britain’s housing affordability crisis can’t be solved by any one quick fix: we need a whole new approach. To start, we need fair taxes on owners of multiple properties to stop tycoons profiteering by locking young people out of the market.
We also need to chip away at Thatcher’s doctrine of home ownership by offering high quality, affordable alternatives with long-term security. That means renter protections, rent controls, and scaling up non-market options like social and community housing.
Finally, we need to get the role of banks under control. While the Bank of England is tasked with trying to keep consumer price inflation low and stable, house price inflation is ignored, if not encouraged. If grocery prices rose at the same level as house prices since 1971, a chicken would cost over £60 today.
It’s perhaps no surprise, then, that two thirds of the public think the Bank of England should be given a target to get house price inflation under control, according to YouGov polling. In practice, this would mean the Bank of England no longer attempting to stimulate the economy through a trickle-down ‘wealth effect’, as well as restricting the tidal wave of bank credit flowing towards already existing property, while redirecting funds towards productive and socially useful investment.
The public agree that we need to stop treating homes as financial assets—an approach that only benefits a super-wealthy elite—and are in favour of bold reform. It’s time for politicians to listen.